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Taxes in New York (TiNY) is a blog by the Hodgson Russ LLP State and Local Tax Practice Group. The weekly reports are intended to go out within 24 hours of the Division of Tax Appeals’ (DTA) publication of new ALJ Determinations and Tribunal Decisions. In addition to the weekly reports TiNY may provide analysis of and commentary on other developments in the world of New York tax law.  

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TiNY Report for June 30 (for DTA Determinations/Decisions during the week of June 18)

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Today is a little crazy for your TiNY correspondents: One of us has oral argument in Albany and the other of us is focusing on a pro bono IRS thing.  But we don’t want to leave our legion of readers hanging going into the Independence Day weekend, so here is our report:

Three Determinations this week and no Orders or Decisions.  None of the Determinations are as interesting as last week’s Matter of Patrick, but one has a little flavor.


Matter of Dail; Judge Galliher; Division’s Rep: Linda Jordan; Taxpayer’s Rep: Pro Se; Article 22.  The Judge granted the Division’s motion for summary determination and imposed a $500 frivolous filing fine. The Taxpayer took some of the typical “wages-are-not-taxable-income” tax protestor positions on his income tax returns and then fought the resulting Notices of Determination.  And he received the typical result. ‘Nough said. 

Matter of Snyder; Judge Maloney; Division’s Reps: Jennifer Hink-Brennan and Brian Evans; Taxpayer’s Rep: Jeffrey Reina; Article 22.  OK.  I received some questioning looks and comments for “Hard-hearted Humperdinck” last week.  But I am going to use it again because I like the consonance and the concept.  And what would you call a State that engages in what appears to be an illegal search and seizure of the contents of a Native American vehicle transporting Native American cigarettes from one Native American reservation to another and then imposes an entirely disproportionate $1,259,250 penalty on the 22-year old driver (!) for transporting $164,250 worth of un-stamped cigarettes?  That’s right, New York, in this instance you were a hard-hearted Humperdinck. Even if you had been in the right (and the Judge found that you were not) a penalty that is 10 times greater than the value of the cigarettes being transported?  Against a 22-year old (the “kid”)?  Are you pulling my leg?  And, like the Judge, I am not even going to get started on the constitutionality of the search of the truck and the seizure of the cigarettes other than to wonder what remedy an ALJ might apply under such a situation. 

This saga is not completely devoid of compassionate government actors.  There seems to be a timeliness issue involved here that ultimately that was waived.  It could be because there was a problem with proof of mailing.  Or it could be that someone in authority just figured the kid should have his day in court. I am going to assume it was the latter because I believe in the inherent goodness of humans.  If my assumption is correct, kudos to whomever made that decision.  The other compassionate actor here is the Judge who found that in this instance the kid’s employer was acting as a contract carrier transporting native cigarettes from one Native American Reservation to another.   And she found, contrary to the Division’s arguments, that the transportation was lawful since the explicit requirement that the cigarettes be transported “lawfully” pre-supposes that unstamped cigarettes are being transported; so any alleged unlawfulness triggering the penalty must arise from something other than the transportation of un-stamped cigarettes.

Matter of Taveras Sister, Inc.; Judge Galliher; Division’s Rep: Adam Roberts; Taxpayer’s Reps: Hilario Taveras; Article 22The case was dismissed for lack of jurisdiction.  The matter involves a notice that had already been petitioned in 2015, and that petition was dismissed on timeliness grounds (Matter of Taveras Sisters (sic), Inc. [August 6, 2015]).  That prior Determination, having not been challenged through a filing of an exception, finally decided the matter, and therefore the DTA no longer had jurisdiction.

And we also have a few juicy non-DTA morsels on which to comment this week. 

  1. The Appellate Division, First Department ruled on Tuesday that Sprint was subject to the Unincorporated Business Tax (UBT) because it was not a utility “subject to the supervision of the department of public services”.  The City’s Utility Tax (CUT) is imposed on: (a) utilities, and (b) vendors of utility service.  Unincorporated businesses are subject to the UBT.  There is an exemption in the UBT for “utilities” subject to the CUT.  Sprint is unincorporated and is subject to the CUT as a vendor of utility services.  Sprint is also subject to some regulation by the PSC.  However, the PSC does not set Sprint’s rates (unlike legacy hard-wire phone companies).  The court found that being subject to the CUT as a vendor of utility service (as opposed to being subject to the CUT as a utility) was not enough to avoid taxation under the UBT.  Sprint v. New York City Department of Finance, 2017 NY Slip Op. 05194 .
  2. Massachusetts Directive 17-1 was supposed to go “live” on Saturday, July 1.  It would have required all internet vendors with Massachusetts receipts in excess of $500,000 to collect sales tax on the sales they made to customers in Massachusetts.  Many SALT pundits have questioned whether the Directive violates Quill.  I don’t question whether it does; there is no doubt in my mind that it violates Quill.  But since Justice Kennedy’s concurring opinion in DMA v. Brohl, it’s pretty much been open season on Quill.  The Massachusetts Commissioner of Revenue revoked Directive 17-1 on Wednesday, with the following comment:  “The Department anticipates proposing regulations which, if adopted after public notice, comment, and hearing as provided under M.G.L. c. 30A, would require large Internet vendors to collect Massachusetts sales and use tax on a prospective basis under standards similar to those described in Directive 17-1. The regulatory proposal will be based upon legal rationale similar to that stated in Directive 17-1. Directive 17-1 is being revoked in anticipation of the rulemaking process under M.G.L. c. 30A.”  So, legislation through administrative fiat is dormant in Massachusetts, at least for the time being.  It would be nice if they actually changed the law through…you know…legislation.
  3. Kudos to the folks at DTA, the ALJ Determinations were on the site the first time I checked yesterday morning at 0900, and the notification that there was no TAT action last week followed shortly thereafter.

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